Various Concepts of National Income
■ Gross Domestic Product (GDP) at Market Price
Gross Domestic Product is the total monetary value of all final goods and services currently produced within the domestic territory of a country during a given period. The value of production carried out by locals or foreigners is taken into account, regardless of whether it is owned by a foreign company or a local company. The value of everything is calculated at market price.
GDPMP = C + I + G + X - M
■ Gross Domestic Product (GDP) at Factor Cost
Gross Domestic Product (GDP) at Factor Cost is the gross domestic product at Market Price minus net indirect taxes at market price. Market price is the price paid by consumers in the market. It includes taxes on products and subsidies. Factor cost is the price received by producers for the product. Therefore, factor cost is obtained by subtracting net indirect taxes from the market price. Gross Domestic Product (GDP) at Factor Cost shows the monetary value of the product produced by production units within the domestic borders of a country in a year.
GDPFC = GDPMP - NIT
■ Gross National Product (GNP) at Market Price
Gross National Product is the total monetary value of all final goods and services produced in a country in a year. It is the market value of all goods and services produced by a country's natural residents. It shows the total economic output produced by the country's citizens. It does not matter whether the citizens are in the domestic economy or abroad.
GNPMP = GNPMP + NFIA
This is the value of the product produced by a country's productive forces in a year.
GNPFC = GNPMP - Net Product Taxes - Net Production Taxes
■ Net National Product (NNP) at Market Price
It is a measure of how much a country can spend in a given period of time. It is the money value of all final goods and services after providing for depreciation. Net National Product (NNP) at Market Price does not take into account where production takes place (production can be domestic or foreign). Depreciation charges are the expenses required to replace the wear and tear of machinery and other goods due to their age. Net National Product is obtained when depreciation charges are deducted from the gross national product.
NNPMP = GNPMP - Depreciation
NNPMP = NDPMP + NFIA
■ Net National Product (NNP) at Factor Cost (National Income)
Net National Product (NNP) at Factor Cost is known as national income. Net National Product (NNP) at Factor Cost is the sum of the wages, rent, interest and profits paid to factors for their contribution to the production of goods and services in a year. This is national product. It is not confined to national borders. It is obtained by adding net foreign factor income to net national factor income.
Net national product = Gross national product - Consumption Expenditure
■ Net Domestic Product (NDP) at Market Price
This is a measure that helps policymakers estimate how much a country needs to spend to maintain its current GDP. If a country is unable to make up for the capital loss caused by depreciation, GDP will decline.
NDPMP = GDPMP – Depreciation
■ Net Domestic Product (NDP) at Factor Cost
Net Domestic Product (NDP) at Factor Cost is the total amount received by the domestic economy as remuneration for the factors of production, such as wages, profits, rent, and interest.
■ Personal Income
It is the sum of all incomes actually received by an individuals or households during a given year.
Personal Income = National Income - Undistributed Profit - Corporate Tax - Net Interest Paid by the Household Sector + Transfer Payments
■ Personal Disposable Income
From personal income if we deduct personal taxes like income taxes, personal property taxes etc what remains is called disposable income. It is the income derived from personal income after deducting tax and non-tax payments.
Personal Disposable Income = Personal Income - (Personal Tax + Non-Tax Contributions)
■ Percapita Income
This concept measures the average income of the people of a country in a particular year. Percapita Income is the national income of a country divided by its population. This is an average income. Per capita income helps in comparing countries and understanding the economic status of countries. Per capita income increases only if the growth rate of national income is higher than the population growth rate. Per capita income is used to compare the economic growth of a country with that of previous years and to compare the economic growth of different countries. The growth rate of national income and the population growth rate are two important things to observe to find out whether a country has achieved economic development based on per capita income.
Per Capita Income = National Income/Population
■ Private Income
Private Income = Net income from net domestic product to the private sector + National debt interest rate + Net income from abroad + Current transfers from government + Other net transfers from abroad
Some Important Terms related to National Income
■ Depreciation - Depreciation is the loss of value of a capital good due to wear and tear over the years. Depreciation does not include loss of value due to accidents, natural disasters, and other unusual circumstances. Depreciation can also be called the consumption of fixed capital.
■ Net Factor Income from Abroad (NFIA) - It is the difference between the income sent to india by Indians working abroad and the income sent to their home country by foreigners in india.
■ Market Price, Factor Cost and Net Indirect Tax - The market price of a good includes factor cost and net indirect tax. Factor cost is the remuneration paid to the factors of production. To get net indirect tax, it is enough to deduct the subsidy from the indirect tax.
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